The first-time founder's ultimate guide to scaling a startup, truly becoming a CEO, and avoiding mistakes that can stunt your company's growth
- Many founders wonder how to grow a business that's still relatively new.
- We asked entrepreneurs, investors, and management professors for their best practices.
- The experts advised hiring to fill the gaps in your skillset and prioritizing company culture.
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When it comes to scaling your company, "there is not a one-size-fits-all approach."
That's according to Deepak Hegde, associate professor of management and organizations at New York University. Hegde also directs Endless Frontier Labs, which helps technology and science startups scale. (One alum is Analytical Flavor Systems, a machine-learning and artificial-intelligence platform that predicts individual taste profiles that's now being leveraged to design boutique bread flavors.)
For one startup, Hegde said, scaling might mean locating a large-scale manufacturing facility to get a product out to wider markets. For another startup, scaling might mean hiring a sales team. Whatever your company's challenge, you'll need a customized plan of attack - plus the willingness to experiment.
One of the trickiest parts of scaling is transitioning from founder to people manager. Early on, said Alexi Robichaux, cofounder and CEO of the career-coaching platform BetterUp, "it's about you versus the world." As your company grows, you've got to build an effective team to help you tackle key challenges.
We asked Hegde and Robichaux, plus several other founders, entrepreneurship researchers, and executive coaches, to outline the fundamentals of growing a business. Read on for their best practices - and the most common pitfalls to avoid.
Start planning to scale as early as possible
Formal planning might seem antithetical to the move-fast-and-break-things version of entrepreneurship. And while more research is needed to prove truly conclusive, studies of thousands of startups indicate that having a business plan can boost the odds of success.
One study, published in 2017 in Strategic Entrepreneurship Journal, looked at data from more than 1,000 entrepreneurs in the US between 2005 and 2011. The researchers compared pairs of founders who were otherwise identical, except one wrote a business plan and the other did not. As it turns out, planners were 16% more likely to succeed than non-planners. (Success was defined as the point when monthly revenues had exceeded monthly expenses for six out of the past 12 months.)
Hegde explained why having a business plan can attract investors. "In order to scale, you need money," he said. "But in order to get money, you need to show proof of scalability."
The plan is (part of) that proof. "Scaling really is about planning," Hegde said. "It requires thinking maybe two, three, four, five years ahead, rather than simply thinking about how are you going to do the best pitch to sell your first customer or your first VC."
A solid strategy is to build a minimum viable product for that would be scalable with the right resources. Then show investors that any money they put in "can be deployed in ways that can meaningfully help expand the markets, or the customer base," and so on, Hegde said.
Know why you're scaling in the first place
Approach scaling with intention.
That's what Hint did. Since 2005, Hint has marketed naturally flavored beverages. It's become a staple at Silicon Valley companies like Google and Facebook. More recently, Hint expanded its product offerings to include sunscreen; soon, the company will sell deodorant as well.
Hint founder and CEO Kara Goldin has explained to Business Insider the logic behind this expansion. Her goal from the outset was to solve consumers' health problems - whether through safe, affordable sunscreen or nutritious, tasty beverages. In both cases, Goldin said, she realized that there were tons of options on the shelf but that people had no easy way to tell which was the healthiest choice. And even if they could, it would probably be out of their price range. Hint could change that.
Remember, too: You're not obligated to scale your business. And it's best to figure out your ambitions around scaling before seeking venture capital. For Hint, scaling has meant reaching roughly 190 employees after 14 years and snagging John Legend as an investor.
Scott Kupor, managing partner at Andreessen Horowitz, previously told BI that one of the first things VCs evaluate is market opportunity, i.e. how big your business can eventually get. It's perfectly ok to build a $20 or $30 million company - but it might be hard to convince a VC to partner with you on that.
Hire to fill the gaps in your skillset …
"As a founder, you are so used to doing everything yourself," Hegde said. "Your startup becomes your baby." That mentality can lead to a few mistakes - namely, trying to do much yourself or micromanaging the employees you bring on.
The truth is that no founder is skilled at every aspect of running a startup. Typically, founders are talented salespeople: They can convince a VC to invest, a job candidate to join the team, and a customer to sign up. That doesn't necessarily mean they'll be a good manager - which, if you ask Cat Hernandez, an operations partner at the venture-capital firm Primary Ventures, is fine.
"Let's assume that your business grows really quickly and you have hundreds, if not thousands, of employees at some point," Hernandez said. "Your job is to set the strategic direction of the company and, yes, be able to drive a leadership team. Some parts of that require you to be a good manager - but if you know that's not your core skill, hire people [who have it]."
… and do it sooner than later
Christine Beckman, the Price Family Chair in Social Innovation and Professor of Public Policy at USC Price, conducted research that found the most successful entrepreneurs hired for specialized roles - say, an operations expert or a marketing expert - early on. "They set it up right from the beginning, rather than trying to go back in time and fix systems and processes that were put in place at the beginning, but no longer work as the company has grown," she said.
Beckman analyzed the executive team members at nearly 2,000 startups, plus how long it took those startups to raise capital and to go public. She discovered that founders who try to do everything themselves wind up "trying to cover more functional areas than they necessarily have expertise in" and "slowing things down because there's a bottleneck of decisions needing to go through these general managers," Beckman said. The founders who hired specialized talent were more successful because they saved the entire team time and effort.
Steve Martocci, cofounder of GroupMe as well as CEO of the music-creation platform Splice, learned this lesson the hard way. "I waited too long to hire an assistant," Martocci wrote an email to Business Insider. "In the early stages of building the company, I always felt guilty about the expense, because at that point I was so focused on the product that it seemed okay to go without [an assistant]. But as the stakes got higher, I started missing important meetings that had a material impact on the company."
Martocci added, "Having since hired an experienced assistant, I can attest to the significant value that she has provided me, and by default, the company."
Learn to delegate
It's not as easy as it sounds.
To Robichaux, cofounder and CEO of BetterUp, it's about deferring to people with more specialized skillsets.
"If you're a really good early-stage founder, you're probably a high performer who's a really talented individual contributor in some vector," he said. "You may not be good at everything, but you're good at programming, you're good at product, you're good at sales. That only gets you so far."
As your startup grows, he noted, you have to get comfortable managing a team that's more high-performing than you are individually.
Executive coach Marshall Goldsmith has explained why delegation can be difficult (for new managers in general, not just founding CEOs). Successful people typically advance by proving over and over again how intelligent they are. They're inclined to do the same once they're in a leadership position - even though that can backfire. The biggest challenge for new managers "is not always winning," Goldsmith previously told Business Insider. Instead, they learn to position others to do the winning for the organization.
Prioritize company culture - and tweak where necessary
"Culture" might seem like a fuzzy concept. But Hegde emphasized its importance. He said founders should make sure the people they bring on are aligned with their culture - even if they don't yet have a section of their website that outlines the company's mission statement and values.
Another common mistake is "not subtracting when you add," said Ethan Mollick, associate professor of management at the Wharton School of the University of Pennsylvania. "The things that made you successful early on aren't always useful later." For example, all-hands meetings (a.k.a. all-staff meetings) might not be helpful or even feasible once the company reaches 500 employees. Scaling, in so many ways, is about adapting to the organization you've created.
Accept that you need to take care of yourself first
Somewhat counterintuitively, your top concern as a team leader is … you. And Robichaux said that's where most founders go wrong. "We think our job first and foremost is to take care of other people," he said, when in fact "your No. 1 job as a leader is to take care of yourself."
Justin Kan, the founder of Twitch and Atrium, recently shared about his firsthand with the challenges of entrepreneurial mental health. "You can be burned out no matter how successful you are, and you can be unhappy no matter how successful you are," said Kan, who sold his first startup for $1 billion. The stress trend is a national one: a 2012 Gallup poll found that entrepreneurs were more likely than other workers in the US to feel worried and stressed.
That doesn't mean you invest in self-care at the expense of the company's well-being. That also doesn't mean you take a monthlong vacation while your company's imploding.
By taking care of yourself, Robichaux means getting "in a good mind space" and having "the emotional resources to be compassionate and not snap at someone." It's why Robichaux prioritizes physical workouts as well as mindfulness exercises in his schedule.
"That is more important than looking at this other document at 11 p.m. That is more important than getting someone feedback late at night," he said. If he doesn't make time for exercise and mindfulness, he's operating from a faulty foundation and everything will suffer."